Who Says Piracy Costs the U.S. $58 Billion a Year?

This article first appeared in the May 11 issue of The Hollywood Reporter.

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Speaking at November 2011's American Film Market, the White House's intellectual property czar, Victoria Espinel -- officially the U.S. Intellectual Property Enforcement coordinator for the Office of Management and Budget -- repeated the oft-cited statistic that intellectual property theft costs the U.S. about $58 billion per year. Given the scale of the problem, one might expect the movie business to have rock-solid numbers on what piracy costs them. But the closer one looks, the more dubious the figures seem.

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"Obviously, the movie industry's number is going to be somewhat suspect," says David Abrams, a fellow with the Berkman Center for Internet and Society at Harvard University. "Even if a person downloaded a movie, it's very hard to translate that into, 'And they would have paid $10.50 to see it.' "

It turns out that Espinel's $58 billion figure covers IP theft as a whole -- a far cry from just film and television. It also comes from a source that would astonish Hollywood liberals.

The figure originated in a 2007 report, "The True Cost of Copyright Industry Piracy to the U.S. Economy," written by economist Stephen Siwek for the Institute for Policy Innovation. Just what is the Institute for Policy Innovation? Answer: A right-wing think tank founded by Dick Armey, the former Republican congressman and nemesis of liberals.

The MPAA's credibility on piracy costs was hurt by a separate 2007 report it commissioned that later proved riddled with holes. Among other things, it blamed U.S. college students for 44 percent of the studios' losses due to piracy. Shortly thereafter, the organization that represents the major studios was forced to acknowledge "human error" in its accounting, admitting students were responsible for only
15 percent of domestic losses.

Despite errors like these, the report (prepared by international consulting firm LEK), derived from statistics obtained in 2005, still is cited by the MPAA when it claims the studios lose $6.1 billion or more annually to worldwide piracy. There has been no new report.

As to when one will be conducted, Chris Dodd, the former U.S. Senator named chair-man and CEO of the MPAA in March 2011, told THR last year: "We are planning that report; it's internal at this juncture. It shouldn't be too long."

An MPAA spokesperson said April 28 that no release date has been scheduled.

Email: Stephen.Galloway@THR.com